AML in fiduciary services: obligations, KYC, risks and compliance file

Scope and obligations of AML: Who is affected?

The Anti-Money Laundering Act (AML) in Switzerland is a key pillar in the fight against money laundering and terrorist financing. It applies to a wide range of economic actors, especially those involved in managing funds or financial assets. But who is specifically affected by this legislation?

Entities subject to AML

1. Financial institutions: Banks, wealth managers, insurance companies, and other financial intermediaries are directly affected.
2. Fiduciaries and lawyers: Professionals who manage funds for third parties or offer company formation services.
3. Merchants: Those who accept cash payments exceeding CHF 100,000.
4. Gambling organizations: Casinos and similar establishments.

Main obligations

• Client identification: Verification of clients' identity and beneficial owners.
• Transaction monitoring: Detection of suspicious operations.
• Reporting suspicious activities: Obligation to report any suspicious activity to MROS (source: MROS - fedpol).
• Training and awareness: Employees must be trained to recognize signs of money laundering.

KYC (Know Your Customer): documents to request and verification process

KYC is a key obligation for fiduciaries and other professionals subject to AML. It is a structured process aimed at identifying and verifying clients' identity.

KYC process steps

1. Information collection:

• Name, surname, date of birth.
• Full address.
• Nationality.
• Profession and economic activity.

2. Document verification:

• Passport or ID card.
• Commercial register extract for companies.
• Recent proof of address.

3. Identification of beneficial owner:

• Signed declaration by the client.
• Verification of complex structures (trusts, holdings).

Table: Required documents for KYC

Monitoring aspects: managing PEPs and sanctions lists

Who are PEPs?

PEPs (Politically Exposed Persons) are individuals holding or having held important public functions, as well as their relatives. These persons present a higher risk of corruption or money laundering.

How to manage PEPs?

1. Identification:

• Use specialized databases to detect PEPs.
• Direct questioning of the client during the KYC process.

2. Enhanced monitoring:

• In-depth analysis of transactions.
• Implementation of specific limits for financial operations.

Managing sanctions lists

International sanctions lists, such as those published by SECO (source: Measures related to international sanctions), must be regularly consulted to avoid transactions with sanctioned entities or individuals.

Table: Differences between PEPs and sanctions lists

Mandatory reports to MROS: procedure and follow-up

When to report?

A report to the Money Laundering Reporting Office Switzerland (MROS) is mandatory in the following cases:

• Suspicion of money laundering.
• Link to criminal activity.
• Presence of a person or entity on a sanctions list.

Steps for reporting

1. Identification of suspicious activity:

• Analysis of unusual transactions.
• Verification of client documents.

2. Preparation of the file:

• Collection of evidence.
• Drafting a detailed report.

3. Submission to MROS:

• Use of the dedicated platform (source: MROS - fedpol).

4. Follow-up:

• Cooperation with competent authorities.

Case study: Reporting and financial impact

A fiduciary discovers that a client has transferred CHF 500,000 from an offshore account without clear justification. After analysis, he decides to report the operation to MROS. Following the investigation, it is revealed that the funds come from criminal activity. The client is prosecuted, and the fiduciary thus avoids sanctions for non-compliance with AML.

Steps to establish a compliance file

1. Risk assessment:

• Identify high-risk sectors.
• Assess clients according to their profile.

2. Implementation of internal procedures:

• Development of KYC policies.
• Employee training.

3. Continuous monitoring:

• Automation of controls.
• Regular updating of client data.

4. Internal audit:

• Periodic verification of processes.
• Correction of possible flaws.

Common mistakes and how to avoid them

Common errors

1. Incomplete client identification:

• Failure to collect all required documents.
• Neglecting identification of beneficial owners.

2. Lack of training:

• Employees not trained in AML obligations.

3. Failure to meet reporting deadlines:

• Delays in transmitting information to MROS.

How to correct them?

• Implement an internal control system: Regularly check client files.
• Train staff: Organize mandatory training sessions.
• Use technological tools: Invest in compliance management software.

FAQ: Frequently asked questions about AML and anti-money laundering compliance

1. What is AML? The Anti-Money Laundering Act (AML) is a Swiss regulation aimed at preventing and combating money laundering and terrorist financing.

2. What are the risks of non-compliance with AML? Risks include fines, criminal sanctions, and damage to the company's reputation.

3. What are the sanctions for non-compliance with AML? Sanctions can include substantial fines and prison sentences for those responsible.

4. How to identify a PEP? By using specialized databases and asking specific questions during the KYC process.

5. What is MROS? MROS is the Money Laundering Reporting Office Switzerland. It receives and analyzes reports of suspicious activities.

6. What tools can help with AML compliance? Specialized software for risk management, KYC, and transaction monitoring can greatly facilitate compliance.

Technological tools for AML compliance

Compliance with AML can be facilitated by using suitable technological tools. These solutions automate processes, reduce human errors, and improve control efficiency.

KYC management tools

KYC management software centralizes and automates client identification and verification processes. Key features include:

• Automated document verification: Tools scan and verify identity documents, proof of address, and other necessary documents.
• Risk analysis: Automatic assessment of client risk based on predefined criteria.
• Data updating: Automatic notifications to update client information.

Transaction monitoring tools

Transaction monitoring solutions detect suspicious activities in real time. Examples of features include:

• Anomaly detection: Identification of unusual or suspicious transactions.
• Real-time alerts: Automatic notifications when defined thresholds are exceeded.
• Trend analysis: Identification of suspicious behavior patterns.

Table: Comparison of technological tools for compliance

Checklist: Essential elements for successful compliance

Here is a checklist to ensure optimal compliance with AML:

1. Client identification:

• Collection of identity documents.
• Verification of beneficial owners.

2. Implementation of internal procedures:

• Development of written policies for KYC and transaction monitoring.
• Regular employee training.

3. Continuous monitoring:

• Updating client data.
• Use of anomaly detection tools.

4. PEP and sanctions management:

• Regular verification of sanctions lists.
• Enhanced monitoring of PEP transactions.

5. Reporting to MROS:

• Preparation of reports in case of suspicious activities.
• Follow-up of submitted reports.

Case studies: Lessons learned from non-compliance

Case 1: A fiduciary sanctioned for non-compliance with KYC obligations

A Swiss fiduciary was sanctioned by FINMA for failing to properly identify the beneficial owners of several clients. This negligence allowed criminal funds to pass through their accounts. Result: a fine of several hundred thousand francs and significant reputational damage.

Lesson learned: Invest in KYC management tools and regularly train employees to avoid such situations.

Case 2: A bank involved in a money laundering case

A bank was involved in a money laundering case after failing to report suspicious transactions related to a PEP. The investigation revealed that employees had not been trained to identify specific risks related to PEPs.

Lesson learned: Implement enhanced monitoring for PEPs and raise employee awareness of specific risks.

FAQ: Additional questions about AML and compliance

7. What are the deadlines for reporting to MROS? The report must be made immediately after detecting suspicious activity, without undue delay (source: MROS - fedpol).

8. Are small businesses affected by AML? Yes, if they carry out financial activities or manage funds for third parties, they must comply with AML.

9. How to prepare for a FINMA audit? It is essential to keep compliance files up to date, regularly train staff, and conduct internal audits to identify and correct possible flaws.

10. What are the consequences of a report to MROS for a client? A report can lead to a thorough investigation by competent authorities. If illegal activities are confirmed, the client may face legal proceedings.

11. Are cryptocurrency transactions subject to AML? Yes, cryptocurrency transactions are subject to AML, and exchange platforms must also comply with KYC and transaction monitoring obligations.

References

• Legal obligations in risk management - admin.ch
• Measures related to international sanctions
• Anti-money laundering - SFI
• MROS - fedpol
• Legal bases for anti-money laundering - FINMA
• The Federal Council enacts the revised Anti-Money Laundering Act